AT&T Wireless Is Up For SaleAT&T Wireless Is Up For Sale

AT&T Wireless is up for sale, and the long-anticipated consolidation of the mobile-phone industry seems to be under way. Cingular Wireless made the first bid for the company, but others are expected to compete for the prize. It remains to be seen who'll come out on top, but however it works out, there are some big changes ahead for customers, analysts say.

A merger between Cingular and AT&T, which both operate networks based on the GSM standard, would create the largest mobile-phone-service provider in the world. "If that merger does happen, it really consolidates the GSM market," says Technology Business Research analyst Christopher Foster. "Customers would be down to really one other alternative, T-Mobile."

Independent telecom analyst Jeff Kagan agrees. "Not only would it become the largest wireless company, displacing Verizon Wireless, but it would also be healthier than if they remained separate, with more revenues, more market share, more spectrum, and lower costs," he says. Customers of both companies would stand to benefit from vastly improved coverage areas and better data services. Cingular's customers will get access to AT&T's next-generation Edge services, and the increased power of the combined company would help develop and propagate those services more quickly. "The technology is similar, so it should be an easy fit," Kagan says.

But other cellular companies are expected to bid for AT&T Wireless, including foreign companies seeking to gain a foothold in the U.S. market. A combination of AT&T and Vodafone Group plc would also produce an enhanced network and easier international roaming. Vodafone is one of the largest mobile providers in the world, with significant deployments in Europe and Asia. Vodafone uses the same kind of GSM network as AT&T, so customers of a combined company could roam all over the United States and Europe without any problems--a feature that's likely to impress business users.

And regardless of who buys whom, the merger will have some impact on pricing. A merger between two major cellular companies could produce cost savings. "If the companies can get their act together and combine their back-office systems, combine their networks, then there are some potential savings," Foster says.

When vendors combine, there's usually concern about reduced competition leading to higher prices. But the wireless market, with six national carriers, has been considered overcrowded for some time, and there are still plenty of other vendors out there. "If one disappears, I don't think it's going to have too much effect on pricing," Foster says.

Those other vendors may actually stand to benefit from the merge, at least in the short term. All the chaos is likely to scare new customers away from AT&T and its successful buyer. "That first year will be fairly confusing," Foster says. "There will likely be a lot of churn." Look at what happened during the merger of Hewlett-Packard and Compaq, he says. "In particular, business customers were concerned with what the product road map was. This could have the same effect."

Verizon Wireless, the No. 1 cellular provider in the United States, will likely be the beneficiary of that churn, Foster says. "Customers may say, 'Why even bother, when I can go to Verizon and get their complete telecom solution?' "